1) counterbalancing errors are those that will be offset and that take longer than two
periods to correct themselves.
2) under ifrs, if an estimate is being developed for a large number of items with varied
outcomes, then the expected value method is used.
3) the times interest earned ratio is computed by dividing income before interest
expense by interest expense.
4) earned capital consists of additional paid-in capital and retained earnings.
5) comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
6) the ending retained earnings balance is reported on both the retained earnings
statement and the balance sheet.
7) dividends in arrears on cumulative preferred stock should be recorded as a current
liability.
8) benedict corporation reports the following information:
net income$750,000
dividends on common stock210,000
dividends on preferred stock90,000
weighted average common shares outstanding100,000
benedict should report earnings per share of
a.$4.50
b.$5.40
c.$6.60
d.$7.50
9) in january, 2008, findley corporation purchased a patent for a new consumer product
for $960,000. at the time of purchase, the patent was valid for fifteen years. due to the
competitive nature of the product, however, the patent was estimated to have a useful
life of only ten years. during 2013 the product was permanently removed from the
market under governmental order because of a potential health hazard present in the
product. what amount should findley charge to expense during 2013, assuming
amortization is recorded at the end of each year?
a.$640,000
b.$480,000
c.$96,000
d.$64,000
10) a measure of a companys financial flexibility is the
a.cash debt coverage ratio
b.current cash debt coverage ratio
c.free cash flow
d.cash debt coverage ratio and free cash flow
11) gamma ray corp. has annual sales totaling $975,000 and an average gross profit of
20% of cost. what is the dollar amount of the gross profit?
a.$195,000
b.$146,250
c.$162,500
d.$243,750
12) where is debt callable by the creditor reported on the debtor’s financial statements?
a.long-term liability
b.current liability if the creditor intends to call the debt within the year, otherwise a
long-term liability
c.current liability if it is probable that creditor will call the debt within the year,
otherwise a long-term liability
d.current liability
13) selected information from dinkel company’s 2013 accounting records is as follows:
dinkel’s statement of cash flows for the year ended december 31, 2013, would show net
cash provided (used) by financing activities of
a.$90,000
b.$(330,000)
c.$240,000
d.$2,040,000
14) krause corporation purchased factory equipment that was installed and put into
service january 2, 2012, at a total cost of $120,000. salvage value was estimated at
$8,000. the equipment is being depreciated over four years using the double-declining
balance method. for the year 2013, krause should record depreciation expense on this
equipment of
a.$28,000
b.$30,000
c.$56,000
d.$60,000
15) lower-of-cost-or-market as it applies to inventory is best described as the
a.drop of future utility below its original cost
b.method of determining cost of goods sold
c.assumption to determine inventory flow
d.change in inventory value to market value
16) altman company will invest $500,000 today. the investment will earn 6% for 5
years, with no funds withdrawn. in 5 years, the amount in the investment fund is
a.$500,000
b.$650,000
c.$669,115
d.$670,145
17) where must earnings per share be disclosed in the financial statements to satisfy
generally accepted accounting principles?
a.on the face of the statement of retained earnings (or, statement of stockholders’ equity)
b.in the footnotes to the financial statements
c.on the face of the income statement
d.either (a) or (c)
18) which table would you use to determine how much must be deposited now in order
to provide for 5 annual withdrawals at the beginning of each year, starting one year
hence?
a.future value of an ordinary annuity of 1
b.future value of an annuity due of 1
c.present value of an annuity due of 1
d.none of these
19) an optional step in the accounting cycle is the preparation of
a.adjusting entries
b.closing entries
c.a statement of cash flows
d.a post-closing trial balance
20) desirable to exercise consistency and establish standardized procedures.
a.1
b.2
c.3
d.1 and 2
21) a common set of accounting standards and procedures are called
a.financial accounting standards
b.generally accepted accounting principles
c.objectives of financial reporting
d.statements of financial accounting concepts
22) the lifo retail method assumes that markups and markdowns apply only to the goods
purchased during the period.
23) ford inc. plans to acquire an additional machine on january 1, 2012 to meet the
growing demand for its product. stever company offers to provide the machine to ford
using either of the options listed below (each option gives ford exactly the same
machine and gives stever company approximately the same net present value cash
equivalent at 10%).
option 1 cash purchase $1,600,000.
option 2 installment purchase requiring 15 annual payments of $210,358 due december
31 each year.
the expected economic life of this machine to ford is 15 years. salvage value at that time
is estimated to be $100,000. straight-line depreciation is used. interest expense under
option 2 is computed using the effective interest method.
instructions
based upon current generally accepted accounting principles, state how, if at all, the
book value of the machine and the liability should appear on the december 31, 2012
balance sheet of ford inc., for each option. present your answer on an answer sheet in
the following format. if an item should not appear in the balance sheet, write “not
shown” opposite the option.
24) provide clear, concise answers for the following.
1>.what is the accrual basis of accounting?
2>.what is an accrued expense?
3>.what is accrued revenue?
4>.what is a prepaid expense?
5>.what is unearned revenue?
6>.state the rule that indicates which adjusting entries for prepaid and unearned items
should be reversed.
25) accounting conceptsfill in the blanks.
fill in the blanks below with the accounting principle, assumption, or related item that
best completes the sentence.
1>________________________ and _______________________ are the two
fundamental qualities that make accounting information useful for decision making.
2>information that helps users confirm or correct prior expectations has
_________________
___________________.
3>________________________ enables users to identify the real similarities and
differences in economic events between companies.
4>_________________ is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date.
5>information is _______________________ if omitting it or misstating it could
influence decisions that users make on the basis of the reported financial information.
6>the ________________________ characteristic requires that the same accounting
method be used from one accounting period to the next, unless it becomes evident that
an alternative method will bring about a better description of a firm’s financial situation.
7>____________________ means when in doubt, choose the solution that will be least
likely to overstate income and assets.
8>providing information that is of sufficient importance to influence the judgement and
decisions of an informed user is referred to as _______________________.
9>corporations must prepare accounting reports at least yearly due to the
_______________ assumption.
10>_________________ generally occurs when realized or realizable and when earned.
26) briefly describe some of the similarities and differences between u.s. gaap and ifrs
with respect to balance sheet reporting.
27) accounting conceptsmatching.
listed below are several information characteristics and accounting principles and
assumptions. match the letter of each with the appropriate phrase that states its
application. (items a through k may be used more than once or not at all.)
1>stable-dollar assumption (do not use historical cost principle).
2>earning process completed and realized or realizable.
3>numbers and descriptions match what really existed or happened.
4>yearly financial reports.
5>accruals and deferrals in adjusting and closing process. (do not use going concern.)
6>useful standard measuring unit for business transactions.
7>notes as part of necessary information to a fair presentation.
8>affairs of the business distinguished from those of its owners.
9>company assumed to have a long life.
10>valuing assets at amounts originally paid for them.
11>application of the same accounting principles as in the preceding year.
12>summarizing significant accounting policies.
13>presentation of timely information with predictive and feedback value.